Transcript SNA 2008

Capitalization of Military Weapons
Systems in the U.S. National Accounts
Brent R. Moulton
Working Party on National Accounts, OECD
Paris
October 25–28, 2011
www.bea.gov
Why SNA 2008 capitalizes weapons
▪ SNA 2008 recognizes that military personnel
are engaged in production and use weapon
systems continuously in the production of
defense services
▪ Weapon systems have value and can be resold
▪ Consistent with international public sector
accounting standards
▪ Service lives and depreciation account for
decline in value over time and the need for
eventual replacement
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Effects of new treatment
▪ SNA 1993 treated purchases of weapons
systems as intermediate consumption
▪ SNA 2008 reclassifies weapons purchases as
gross fixed capital formation (GFCF)
 Lowers final consumption expenditures and raises
GFCF by equal and offsetting amounts
▪ SNA 2008 includes weapons systems in
consumption of fixed capital (CFC)
 Raises final consumption expenditures and GDP
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Effects on U.S. national accounts
▪ GDP level - for 2010:
 Purchases of weapons systems were about
$105 billion (or 0.7 percent of GDP)
 Reclassified from consumption expenditures to
GFCF
 CFC for weapons systems was about $74
billion (or 0.5 percent of GDP)
 Raised general government final consumption
expenditures and GDP
▪ Modest effects on GDP growth rate,
trends
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Perpetual inventory method
▪ CFC and net stocks are calculated using
the perpetual inventory method (PIM)
▪ Method is described by:
 OECD, Measuring Capital: OECD Manual
2009, second edition
 Bureau of Economic Analysis, Fixed Assets
and Consumer Durable Goods in the United
States, 1925–97, (2003), available at
www.bea.gov
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Outline of PIM
▪ Determine age-price/depreciation profile for
each type of asset
 May be geometric or straight-line
▪ Determine retirement profile (straight-line)
▪ Apply profiles to net stock (geometric) or to
time-series of investment (straight-line) at
constant prices
▪ Calculate end-of-period net stock as beginning
stock plus investment less other changes in
assets less depreciation (at constant prices)
▪ Reflate to current prices
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Setting depreciation/service lives
▪ For service lives, BEA staff consulted with staff
from the Department of Defense
▪ Declining balance rates were used to convert
service-life information to depreciation rates
▪ Geometric depreciation profiles are used for all
asset types except missiles, which use straightline
▪ For more information, see Fixed Assets and
Consumer Durable Goods, available at
www.bea.gov
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BEA depreciation rates/service lives
Examples – selected weapons system assets
Asset type
Geometric
depreciation rate
(percent)
Service life (years)
7 to 11
15 to 25
28
6
N.A. (straight line)
20
6 to 7
25 to 30
8
20
Aircraft:
Air frames
Engines
Strategic missiles
Ships
Tanks and armored
personnel carriers
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Other changes in assets
▪ For weapons systems, other changes in assets
may represent war losses or the scrapping of
equipment after a war.
▪ War losses affect the PIM calculation in the
following ways:
 The loss itself is subtracted to derive end-of-period
net stock.
 Depreciation on the loss is computed using a halfyear convention. This “depreciation” is subtracted
from both beginning-of-period net stocks and CFC.
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Implementation in U.S. accounts
▪ Based on advisory expert recommendations,
BEA began capitalizing military weapons
systems in its national accounts in 1996
▪ For international comparability, data
submitted to OECD apply the SNA 1993
treatment
 This is the only NIPA/SNA adjustment that affects
GDP
▪ When BEA implements the other major SNA
2008 changes in 2013, it will no longer need to
make this adjustment
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